Sunk Cost Fallacy Fallacy

The problem with common sense is that it’s definitely not common. In fact, the more commonly expressed that a given piece of advice is, the less likely that it’s useful for the given situation that it is given. I choose to believe that this is because these sayings are spread by Hollywood thinking, which is when unrealistic situations are presented in which a single piece of advice magically solves a dilemma. However, it’s most likely that the common phrase simply doesn’t apply when it is suggested, it’s only suggested because it’s fresh on someone’s mind.

One such example is the Sunk Cost Fallacy. The short explanation is that if a company has been working on Process A for 6 months and expect it to take another 6 months, and Process B could be started and completed in 4 months, then the 6 months spent on Process A should have no bearing on moving to Process B. The company can’t get that time (or money) back. If there’s an emotional attachment to Process A, the time spent on it can seem like it still has a lot of value. The typical example is a company spending money on tools for producing a new product, and realizing it’s not profitable. They shouldn’t produce the product just because they bought the tools, if they know that continued activity will lose more money. The problem, though, is that there is not good example.

Where it goes wrong? There are very few things in a person’s personal life in which emotions are worthless. In order to apply the concept of a Sunk Cost in economics, there cannot be qualitative results that are incompatible with the measurement being used. I could very easily tell someone that their 25 years of going to the movie theater every Friday night is expensive, and that they should consider it a sunk cost and take up a cheaper activity like hiking. But I’d just be an absolute jerk because I’m boiling their interests down to money. Somehow I’m saying that the memories they enjoyed are not valuable simply because they cost too much. If that person met a spouse there and has continued this tradition through marriage because it’s their special time, all the sudden money is more important when emotion is the actual currency being discussed.

Sticking with the hobby example, the second part is that politics teaches us to think in serial as opposed to parallel. We don’t just boil complex problems down to yes and no questions, we remove the possibility that more than one yes can coexist. So then, why not both? The largest problem with the application of the Sunk Cost fallacy is that it is usually built on a false dichotomy. A manufactured mutually exclusive world. Somehow a person who loves to buy movie theater tickets cannot go hiking unless they give up the theater. Obviously with this example that’s a stupid restriction, but when facts are presented this way in a work setting it can be harder to see the serial thinking. Most of the time you CAN do both, and if not, the only thing preventing both is an unrelated decision that can be reversed.

Although the first two reasons are the most common problems with the application of the Sunk Cost fallacy, a third consequence is the most damaging. The future value of the experience of an activity is difficult to predict and impossible to measure. Famous directors sunk large costs into movie theater tickets. Video game developers sink great amounts of time into playing video games. Doctors throw years and fortunes away at school. The idea of calling any of these things a Sunk Cost slights the value and decision making that came from it. They are quite simply experiences. Imagine a Resident saying, “I’m deeply in debt to medical school, I’ve wasted a decade of my life, and it’s going to take me several more years to finish my residency. I should consider that a sunk cost and go into painting.” No, the experience is the most important driving factor in their decision making, not inconsequential!

Furthermore, the concept of vocation as time + labor is either dead, or never existed. Certainly there is plenty of work that can be learned on the job and is accomplished by people repeating tasks over time. But that job was made possible by creativity and invention. And that job will be made easier in the future by creativity or invention. And the person who will drive that creativity or invention will be someone who spent years working that menial vocation. The fact is that when humans are present, there are very little things in which the experience has no value.

Let’s analyze the value of experience. Software development is a common place where Sunk Cost is used to excuse decision making. Many times an unknown technology comes to their attention part way through development. In software development it’s fairly easy to say that time is money. A certain number of developers working for a certain time period determines a cost. So if the new technology can accomplish things quicker, then engines full stop, it’s time to change course! But the first iceberg that hits is always the concept of ramp up time. See, knowledge and experience in Process A leads to faster use of Process A. Inexperience in Process B leads to slow use of Process B. Often times “A bird in the Hand” is the actual wisdom that should apply to a situation, and premature mention of the Sunk Cost fallacy drives people to open the windows, unlatch the their bird cages and dive headfirst into thorn bushes with the promise of a good meal.

More so, not all processes have the same potential. If Process A involves a technology that is more marketable than Process B, and the business relies on the sale of new project work, then the experience value of Process A greater. Additionally, there are very few cases in software where the best solution for making the software easily maintainable is faster than a solution that is hard to maintain. The fact that Process A is better for a set of circumstances is value. Basically the concept of Sunk Cost is itself a black and white view of a complex world.

I’m not saying that there is no value in the understanding of when emotional value is being placed on something that shouldn’t have it, such as a particular mutual fund. I’m saying that comparing apples and oranges is pretty dumb and no catchy common phrase is going to boil an important situation down to black and white.

So how does this apply to gaming? I think there is a lot of this thinking that never gets expressed verbally. As a player it’s very common to be placed into a campaign where advancement towards a particular skill set is not as useful than it should be. How will a diplomat succeed in a 30 hour hike through a tomb of reanimated zombies? It’s common to want to roll a new character, or abandon a skill tree to reach for immediately needed skills. But RPG’s are a great place where this kind of thinking shouldn’t take place.

There’s definitely a fundamental design difference between many RPGs. What is a character? Is a character their abilities, or a character their experiences. In D&D, for example, a character is mostly their experiences. The player has very limited abilities at the start and gated progression through a meticulously designed set of skill trees. Players tend to define their characters by the experiences that they lived through. Story games tend to define characters based on their abilities. Complex back stories feed into high starting ability scores. The player’s story leads into their ability and their future potential tends to be how the player defines their character.

When a character is their experiences, players get really invested in the longevity of a character. There is an emotional attachment to the character. They might as well be a real person in the player’s mind. This is cool, and has value. It’s not a sunk cost, it’s a well placed investment in the story that produces dividends. It’s good to make decisions based on this emotional response, and in my experience this is how stories are formed in the crunchiest of game systems.

But if this character is presented with a world that is not friendly to their skills or experiences, it’s tempting to roll a new character. But it can be much better to resist that. I feel like bringing in a character with an established history feeds creative thinking and creative solutions. That’s more fun to me.

The other kind of game, where characters are their abilities, will fall into this problem a bit different. Story game characters have a history in their bio that is important to their future gameplay. It’s not experiences from the game, it’s biography from the player. For many players this backstory is a big investment. Possibly inspired from their favorite comic. Maybe even an original story they are writing. But the big difference is that there is less game time built into the effort of establishing that emotional connection.

The type of thinking that effects these characters more is the investment of future skills. In a game where it takes time to continue mastering the best skill, when a situation doesn’t favor that skill it’s very tempting to consider that skill a sunk cost and use those points to pick a new skill suited to the current situation. Players end up choosing to make jack-of-all trade characters rather than specializing on their player’s story based areas. In story games this leads to a lot of skill overlap, and blends what makes players special until they’re basically a group that focuses on the exact same aspects.

As players be aware of the considerations and consequences of this kind of thinking. Certainly there is use for it in daily life, and even in gaming, but in the end I’ve really often seen the investment in a decision made based on the Sunk Cost fallacy to itself be a sunk cost that has to be corrected.


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